Last August, the Federal Trade Commission (FTC) published a blog post “adjusting” the agency’s procedure for reviewing mergers, warning companies to proceed with deals “at their own risk.” Today, the agency continues to investigate Uber’s purchase of alcohol-delivery service Drizly — despite the deal closing last October. The FTC’s extended probe into the Uber-Drizly deal highlights the agency’s new, unhinged approach to mergers and acquisitions.
The FTC announced: “For deals that we cannot fully investigate within the requisite timelines, we have begun to send standard form letters alerting companies that the FTC’s investigation remains open and reminding companies that the agency may subsequently determine that the deal was unlawful.” Rather than determine definitively whether a deal is “unlawful” or “lawful,” the probe continues while the deal hangs in legal limbo.
The new policy upends the FTC’s long-held process and timeline for reviewing deals. To start, the Clayton Act directs the FTC to block acquisitions which may “substantially […] lessen competition,” or “tend to create a monopoly.” In other words, the agency is responsible for blocking noncompetitive deals and clearing competitive ones.
The agency reviews the legality of these deals under the 1976 Hart-Scott-Rodino (HSR) Act, which requires merging firms to notify the FTC and Department of Justice in advance of transactions worth more than $92 million and wait 30 days before closing the deal. The legal prohibition against closing the deal lifts after HSR’s 30-day waiting period ends.
While the FTC has always retained the authority to challenge consummated deals, the blog post indicates that the agency will no longer restrain the length of its probes in the name of creating certainty and promoting competitive deals. Now, by sending letters to merging firms, the FTC will keep investigations open indefinitely — putting companies in the difficult position: Do they delay their deal? Or close and risk being sued?
In response to the new policy, Commissioner Wilson tweeted: “With rare exception, businesses that faithfully comply with the HSR process should not be trapped perpetually beneath a Sword of Damocles. Such a policy would not serve consumers or competition.”
Uber purchased Drizly for $1.1 billion 4 months ago, integrating the alcohol-delivery marketplace into UberEats while continuing to offer the standalone service. Today, the FTC’s sword continues to hang menacingly over the deal.
From a business and user perspective, the deal is done. Cory Rellas, CEO of Drizly, celebrated the deal for accelerating the startup’s “mission of becoming the go to place for alcohol,” adding: “Today is the start of another chapter and we couldn't be more excited about becoming a part of the Uber family.”
Not so fast, Cory. The FTC’s Uber-Drizly investigation remains open. The agency may yet decide the deal lessens competition or creates a monopoly. In that case, the FTC may fine Uber, block parts of the deal, or unwind the sale altogether — with no timeline in sight. So much for certainty.
The FTC’s new approach to mergers and acquisitions incentivizes the agency to sit on its hands rather than issue rulings. Why thoroughly investigate a proposed merger and reach a final decision when you can just send a letter and decide later?
Though Uber was bold enough to move forward with the Drizly deal, the FTC’s new policy will undoubtedly deter companies from attempting, or even considering, deals down the road. One week after the blog post, for example, a deal between DoorDash and Instacart fell apart at least partly due to uncertainty around the FTC’s new approach. By affording itself more leisure to investigate, the FTC now threatens to hold up transactions that do not harm competition.
But the entire point of the agency’s merger review process is to weed out anticompetitive deals while allowing procompetitive ones to move forward. By leaving probes open indefinitely, the FTC is now effectively refusing to do the hard work that Congress assigned it back in 1976.
